Green bonds are no miracle cure against global warming. Without arguments in their favour, green bonds are a well-formulated paper tiger. Therefore, the benefits/risks of green bonds are important to issuers/investors. These benefits/risks are a highly debated topic in the finance industry and academic literature. This paper tries to find out if green bonds are beneficial for both parties involved and can serve as a suitable source of financing for the transformation of the economy. The following main hypothesis was made: The benefits of green bonds outweigh the risks for investors and issuers

To test the hypothesis, this paper analyses the impact of green bonds on both parties involved (issuers and investors) and combines a literature review where the most cited effects of green bonds are mentioned, with an OLS regression analysis on a negative green bond premium (beneficial yield difference for issuer). Using this approach, the paper fills a gap in the existing literature. The following sub-hypothesis was used for the analysis: The costs of capital an issuing company has with green bonds tend to be lower than with traditional bonds because of the negative green bond premium

The analysis revealed a negative premium for green bonds of 4 basis points in the underlying dataset, which consists of European non-government issuers whose bonds are listed in the Bloomberg Barclays Global Aggregate Index. However, the observed yield difference between traditional bonds and green bonds was not statistically significant, therefore the sub-hypothesis was rejected. Although the analysis did not find a major beneficial effect to issuers due to a negative green bond premium, this paper found other benefits to issuers and investors that seem to outweigh the associated risks. Furthermore, certain identified risks appear to have limited impact on stakeholders and other risks seem to be manageable in most cases. Therefore, this paper concludes that green bonds are a suitable funding source for the transformation of the economy. As the green bond market further develops and the financial market may be exposed to changes (higher interest rates, climate change impacts, sustainable investment taxonomy discussions), future research needs to keep a close eye on green bonds and the ongoing changes in their impact on issuers and investors.